Welcome to the Great Ajax Corporation Fourth Quarter and Year-End 2016 Financial Results Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn that conference over to Larry Mendelsohn, CEO. Please go ahead sir.

Thank you very much, I appreciate it. Thank you everybody for joining the fourth quarter and year-end conference call for Great Ajax Corporation. Before we get started I want to make sure everybody looks at page 2, the Safe Harbor disclosure and then we'll get right on into the material. I want to make a general comment first. Number one, it was actually a good quarter in terms of the underlying economics and what I will call NAV creation. But we also, as you can tell and as we talked about on our third quarter conference call, there is some GAAP noise from calling our 2014 securitizations and also some REO noise from accounting requirements. On the flipside there's also been, especially in the last three weeks, there have been some really positive developments in the loan market and I will talk about those in more detail as we go through. In general about Great Ajax, I can't ever say enough about our sourcing network. It is really important to our ability to acquire the types of loans we acquire, in a markets we want them and at the prices we pay relative to others. And as you will see the prices we pay versus where clean-paid loans are now is even more dramatic and we will talk about that later. Over 90% of our acquisitions continue to be in privately negotiated transactions in fact is probably becoming even more so and it's even more loan-by-loan than ever before. We have done 181 transactions since July of 2014 and 12 transactions just in the fourth quarter of 2016. Proprietary analytics, another thing I can't say enough about. We spend a lot of time looking at data to determine the target loan characteristics, forecasting performance on those loans and looking at…

[Operator Instructions]. And the first questioner today is Steve Delaney with JMP Securities. Please go ahead.

Thanks Larry, we appreciate as usual the thorough update of what has been going on with great Ajax. The decision you made to sell all of your REO, obviously significant if you're valuations hold up in the other side of the trade agrees with you, it's almost $0.25 per share and whether we want to call it earnings or book value is it is a nice number. I'm just curious about the process here. We obviously have a number of large single-family rental enterprises including a big IPO. Is a possible this is like bulky in terms of how it's disposed of or is it going to be a more tedious one-by-one over the next year or two? Just a thought and how you expect to liquidate?

Sure. I would say it would be more tedious than I would like but their may be a small amount of -- late 2014 in early 2015 NPL purchases had a fair amount of concentration and what we b ought. There were heavily concentrated in Florida, New York, New Jersey and Maryland. As a result of that, the REO has some concentrations. The early REO is less likely to be in bulk than the later REO just because the later REO is probably at the middle to higher end up typical REO to rent and the early is probably at the low end of REO to rent. For some of the later REO including some on our balance sheet already as opposed to what's going to come on our balance sheet from loans in the next six to 12 months, some of the early REO would likely be sold one-off because it's not as concentrated and its lower value for some of the later REO I would think we will lump together for both buyers even if they are both mom-and-pop buyers. One thing I don't think people realize that is biggest the REO -- it is a still tiny fraction related to the mom-and-pop market of REO to rent. One of the things we have learned over the years particularly in some of our markets is the number of people who have five and 10 rentals is much larger than anybody believes it is.

Very much a cottage industry for sure. That's helpful. It sounds like we should plan on timing that out over maybe the next four to six quarters rather than thinking it's the next two or three.

It's certainly not the next one or two. I think a significant piece of it will be this year.

Okay. Just looking at your securitization and I'm not personally familiar with these, I guess I have a little bit of looks like I assume they are kind of being driven as far as advanced rates on the senior notes off a percentage of UPB and this one looks like it was 65% of UPB, that makes sense. If I'm thinking about it if your average acquisition cost is 80 of UPB, if I'm looking at a bond investor giving you cash at 65, that's up 15% Delta. If I look at that I get like 4.3 times leverage to the senior and my thinking about it correctly?

That is the correct way to look at it, yes.

And the subs you're holding so essentially you are securitizing part of your equity in your keeping the subs as you showed us on the table get in the back of the deck?

That's exactly right. And we put arbitrarily large coupons on the subs. The subs all carry a five and a quarter coupons so -- as possible on a cash flow basis. The securitization we did in October, when we started doing securitizations in 2014, the advanced rate was 45 or 50. That we've developed a group of bond buyers who don't justify bonds from us, they coinvest loans directly with us, too and they liked the like the way we look at loans and our servicing and the way we service and they have spent a day or two each looking at her servicer and getting a feel for everything and as a result our advanced rate has increased significantly and our all in cost of funds has actually come down as the advanced rates of non-GAAP. We're really excited about it. We're also excited -- I will say we're excited to work with the rating agencies because it is certainly a detailed process which will take a fair amount of time but we're excited to get the program going with the rating agencies because we think we would even further the advance rate. If you look at the advance rates on the -- is that with the securitization. Those advance rates on rate to deals are very high on the clean pay loans that we think our advance rate will actually go up and we think the cost of refinancing will go down by one to one and maybe as much as one and a half% on those loans. We spend a lot of time on the structured finance market.

And the next questioner today Jessica Ribner with FBR. Please go ahead.

How do you guys see the effect of lower regulation loan sales and how are you guys thinking of that?

It's going to make banks big sellers. We've already seen the bank start. It's partially a first order effect with less regulation but I think the bigger effect is a rise in rates or more yield in the curve and banks would take assets that they currently hold more capital than what they would like to against those assets and they are going to sell them because they can now replace it was something they can earn some money on which a year ago they couldn't do. From all the banks we've talked to, we expect a lot more is going to come out over the next -- than they had been sellers of previously.

To what extent do you guys think overall yield will be removed from improving credit?

For our portfolio, the more the borrowers pay, because would buy such a discounted property value the more the borrower consistently pays it lowers our yield rather than raises their yield because it extends duration. It increases cash flow dramatically. It increases money dramatically. Increases NAV of our balance sheet dramatically. Not what I will call -- the actual NAV of the underlying assets. It increases that dramatically also so we root for performance because we're deep value investors, we're not momentum investors so we root from Lake performance for the borrowers and the downside is a loan default and it increases yield the decreases money multiple and decreases duration.

And the next questioner today Kevin Barker with Piper Jaffray. Please go ahead.

Regarding the unrealized gain on the $4.4 million that is expected to be realized, could you talk about the transaction cost in that sale or your expected transaction cost?

That's best number is net of an estimate of selling estimates of 8% and net of an estimate of repair costs. And net of any payments we will have to make for previous service or advances in the foreclosure or property tax or something like that on those properties.

So it's pretty fair to say it's pretty close to the number you expect to realize on the income statement when everything is said and done?

Yes. It depends on the holding period. The real estate markets shuts down and we wake up two years from now and we still on it but their will be more expenses but as of now for what we know and can tell from the actual properties and seeing the insides of them and forgetting repair estimates and things like that, it is kind of our best guesstimate.

Do you see this as a bolt portfolio were you can get rid of her quickly or is this something where you few lights it's going to play out over several months?

A portion of it could be a bulk portfolio but not 100% of it. That is only because a portion of it is concentrated and a portion of it is less concentrated. I would say more than 50% is concentrated but there is a portion that is less concentrated and would be harder for a bulk sale other than to a mom-and-pop.

Okay. We're hearing some softness in the Miami area, are you seeing any softness in the property value in those markets?

We're definitely seeing softness in the Miami area but in a different spot and demographic than our typical loan. Where we're definitely seeing this office is the high end condo market, more of the flights capital market. Condos about 600,000 and higher, we're definitely seeing softness in that market. Part of it is due to the strength of the dollar versus foreign currency. Part of it is there is probably a five-year supply of condos for sale or under construction. We're not seeing softness, if you go to the West side of Miami in the gated communities were all the houses are $450, 000, we're not seeing softness and t hen. We're not seeing softness in the eight unit apartment building in West Miami. We're not seeing softness in the $400,000 condo on [indiscernible] but we're seeing softness on the $800,000 condo [indiscernible].

Okay. Going back to my earlier question they think about the sale of the REO and you realize gain, how should we think about the potential for that to flow through 2017? Is it something that's going to be maybe one big lump sum that could happen or is it something where you expected to believe through over time?

I would expect for the next quarter or two it would be more of a bleed versus a lump sum. For the second half of the year, it's more likely to pick up quicker than it does the first half of the year.

I believe you mentioned 90 to 150 million in UPB that is potential purges in the near term--

115, not 150. Those are in negotiations. The our you have prior to this call I was going loan by loan with our acquisition team that we've gone back and forth with.

Okay. In relation to that, that portfolio, what do you expect -- it would appear your leverage would increase right off the bat if you were to purchase that right now. Do you think you can find some of that was sales for some of the cash flow coming off the existing portfolio in order to keep leverage relatively stable with where it's at right now?

I think we will likely do it and leverage would increase from about 2.372 about 3.25.

And the next questioner today Robert Dodd with Raymond James. Please go ahead.

Obviously the GAAP is a particularly favorable -- as things a job, use decline--

I'm still waiting for the -- to ask my opinion.

That would be nice.

For example you mentioned potentially selling some these assets, you got 168 million UPB that is 24424. That's really valuable stuff. You mentioned talking to -- talking to Deloitte, what is the planned timescale on where you start to monetize that just because obviously -- and you should train your business on a GAAP basis, but it would potentially shift the needle on how those things show up in terms of GAAP earnings, in terms of recognition yields and things like that and for modeling purposes. Those things can move around as you start to exit those so do you have any time frame what you might be looking to sell some of those [indiscernible]. We've actually had some preliminary discussions with a couple of loan buyers. The tax rules have all kinds of limitations as to how much you can sell in a year, one holding period you might need and what safe harbors there are and whether or not you need to do some of it from a TRS and others not, TRS. In order to be within the safe harbors. The other thing we don't want to do is put ourselves in a situation where we get to close to the safe harbor limits and then something happens that we're just drooling over and we can't sell more at that time so you always want to have a buffer of availability to sell more. We're both working with the rating agencies and evaluating some portion of those assets in sale as well. My guess is during this year we will follow a path of some of each.

The next questioner today Brock Vandervliet with Nomura Securities. Please go ahead.

I guess I got the counterpoint to the prior question. I know you don't want to be a slave to running the company on a GAAP basis. I feel like we all need some sort of level set on earnings power here. I add back the two special items that come to around low 40s to the mid40s--

And then you have 50 million of acquisitions in the last three days of the year for which on the expenses in the quarter. That hides some of the earning power from that but let's call that another penny to two pennies.

Okay. It is just helpful getting some sort of a level set--

Since my whole background has been from years and years ago was on that distressed side, -- mentality as opposed to my current earning. I much more focused on the NAB side. I totally get the earnings side in the consistency side but from kind of a running the company perspective, I personally extremely value focused and are we creating built in value that eventually gets captured through realization, through pay off of loans, through sale of loans, through rated securitizations and stuff like that. I totally get what you are saying on the consistency of earnings.

I think all the investors respect how you are running it and what you are generating. I don't think there is much benefit in having EPS numbers out there that just aren't realistic so I appreciate those comments. Any other collets you would make in terms of the expenses in loan servicing or any other items you would call special or whatnot this quarter?

In the loan servicing expenses are little higher because we've had to face them in terms service expenses during the quarter which are a little bit abnormal. We get it in voice for those. We don't necessarily accrue for them so if they come in higher than expected it becomes a little distorted and we've had some pools -- the servicing expenses were little bit higher in some of that was expense incurred in the third quarter but we didn't see it until the fourth. We don't know what's going to happen in the third quarter and the bill shows up in the fourth -- is a little bit of that. Like I said we closed a significant number of loans at the very end of the year and all that expense shows up in Q4 without any offset. That is happened to us in some other quarters. That happened in the second quarter if you remember. That is something that will happen to the extent people need specific execution on a very specific day that is that quarter and or in this case at year end. There are benefits from that in that we get to buy loans really cheap. As you might imagine the person needs December 31 no matter what sells at a different price than the person or doesn't care between December 31 and January 1. Another thing to think about also is on our funding costs. One of our repo facilities, in the extension of that facility in November, the cost and the fees have come down so we would anticipate the funding expense related to that line would be lower going forward that it was in 2015 or 16.

This will conclude our question and answer session. I would like to turn the conference over to Larry Mendelsohn for any closing remarks.

Thank you, very much everybody for joining in on our 2016-year and fourth quarter conference call. Please feel free to contact us indeed you have additional questions over time, we look forward to talking to you again in a few months. Everybody have a great evening.

The conference has now concluded. You may now disconnect your lines.